The Greatest Financial Bubble In History

China is in the greatest financial bubble in history. Yet, calling China a bubble does not do justice to the situation. This story has been touched on periodically over the last year.

China has multiple bubbles, and they’re all getting ready to burst. If you make the right moves now, you could be well positioned even as Chinese credit and currency crash and burn.

The first and most obvious bubble is credit. The combined Chinese government and corporate debt-to-equity ratio is over 300-to-1 after hidden liabilities, such as provincial guarantees and shadow banking system liabilities, are taken into account.

Paying off that debt requires growth, but the growth itself is fueled by more debt. China is now at the point where enormous new debt is required to achieve only modest new growth. This is clearly non-sustainable.

The next bubble is in investment instruments called Wealth Management Products, or WMPs. You may remember hearing about in the Daily Reckoning and also covered in Bloomberg’s article China Is Playing a $9 Trillion Game of Chicken With Savers.

Picture this. You’re a middle-class Chinese saver and you walk into a bank. They offer you two investment options. The first is a bank deposit that pays about 2%. The other is a WMP that pays about 7%. Which do you choose?

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"This Market Is Crazy": Hedge Fund Returns Hundreds Of Millions To Clients Citing Imminent "Calamity"

While hardly a novel claim - in the past many have warned that Australia's housing and stock market are massive asset bubbles (which local banks were have been forced to deny as their fates are closely intertwined with asset prices even as the RBA is increasingly worried) - so far few if any have gone the distance of putting their money where their mouth was. That changed, when Australian asset manager Altair Asset Management made the extraordinary decision to liquidate its Australian shares funds and return "hundreds of millions" of dollars to its clients according to the Sydney Morning Herald, citing an impending property market "calamity" and the "overvalued and dangerous time in this cycle".

"Giving up management and performance fees and handing back cash from investments managed by us is a seminal decision, however preserving client's assets is what all fund managers should put before their own interests," Philip Parker, who serves as Altair's chairman and chief investment officer, said in a statement on Monday quoted by the SMH.

The 30-year investing veteran said that on May 15 he had advised Altair clients that he planned to "sell all the underlying shares in the Altair unit trusts and to then hand back the cash to those same managed fund investors." Parker also said he had "disbanded the team for time being", including his investment committee comprising of several prominent bears such as former Morgan Stanley chief economist and noted bear Gerard Minack and former UBS economist Stephen Roberts.

Parker said he wanted "to make clear this is not a winding up of Altair, but a decision to hand back client monies out of equities which I deem to be far too risky at this point."

"We think that there is too much risk in this market at the moment, we think it's crazy," Parker said with a candidness few of his colleagues are capable of, at least when still managing money.

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The Next Stock Market Crash Will Be Blamed On Donald Trump But It Will Be The Federal Reserve’s Fault Instead

A stock market crash is coming, and the Democrats and the mainstream media are going to blame Donald Trump for it even though it won’t be his fault.  The truth is that we were headed for a major financial crisis no matter who won the election.  The Dow Jones Industrial Average is up a staggering 230 percent since the lows of 2009, and no stock market rally in our history has ever reached the 10 year mark without at least a 20 percent downturn.  At this point stocks are about as overvalued as they have ever been, and every other time we have seen a bubble of this magnitude a historic stock market crash has always followed.  Those that are hoping that this time will somehow be different are simply being delusional.

Since November 7th, the Dow is up by about 3,000 points.  That is an extremely impressive rally, and President Trump has been taking a great deal of credit for it.

But perhaps he should not have been so eager to take credit, because what goes up must come down.  The following is an excerpt from a recent Vanity Fair article…

According to Douglas Ramsay, chief investment officer of the Leuthold Group, Trump administration officials will come to regret gloating about the market’s performance. That’s because Trump enters the White House during one of the most richly valued stock markets in U.S. history. The last president to come in at such valuations was George W. Bush, and the dot-com bubble burst soon afterward. Bill Clinton began his second term in a more overvalued stock market in 1997, and exited unscathed. But if his timing were different by just a year, he would have been blamed for the early-aughts market crash.

This stock market bubble was not primarily created by Barack Obama, Donald Trump or any other politician.  Rather, the Federal Reserve was primarily responsible for creating it by pushing interest rates all the way to the floor during the Obama era and by flooding the financial system with hot money during several stages of quantitative easing.

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Visualizing How The Big 5 Tech Giants Make Their Billions

Hitting record high after record high, tech companies have displaced traditional blue chip companies like Exxon Mobil and Walmart as the most valuable companies in the world.

Here are the latest market valuations for those same five companies:

Together, they are worth $2.9 trillion in market capitalization – and they combined in FY2016 for revenues of $555 billion with a $94 billion bottom line.

BRINGING HOME THE BACON?

Despite all being at the top of the stock market food chain, Visual Capitalist's Jeff Desjardins points out that the companies are at very different stages.

In 2016, Apple experienced its first annual revenue decline since 2001, but the company brought home a profit equal to that of all other four companies combined.

On the other hand, Amazon is becoming a revenue machine with very little margin, while Facebook generates 5x more profit despite far smaller top line numbers.

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The 5 Possible Outcomes Of The OPEC Meeting

The highly-anticipated OPEC meeting is taking place this week, but unlike the last few meetings, the hype and excitement is much less palpable. That is largely because the end result is thought to be a foregone conclusion.

Last week, Saudi Arabia and Russia telegraphed the events of the May 25 meeting, announcing support for a nine-month extension of the existing production cuts – 1.2 million barrels per day (mb/d) from OPEC plus 558,000 barrels per day (bpd) from a group of non-OPEC countries. With the two most important oil producers in agreement, the meeting should be quick and easy.

"The decision seems to be almost a done deal," said Bjarne Schieldrop, chief commodities analyst at SEB Markets. "There seems to be a very high harmony in the group."

But if we have learned anything from the OPEC meetings over the last several years, it is that nothing should be taken for granted. Time and again the cartel seems to surprise the markets. Saudi Arabia’s energy minister hinted over the weekend that the OPEC meeting could have more drama than many analysts currently expect.

"Everybody I talked to... expressed support and enthusiasm to join in this direction, but of course it doesn’t preempt any creative suggestions that may come about," Saudi energy minister Khalid al-Falih said at a news conference in Riyadh.

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They Are Killing Small Business: The Number Of Self-Employed Americans Is Lower Than It Was In 1990

After eight long, bitter years under Obama, will things go better for entrepreneurs and small businesses now that Donald Trump is in the White House?  Once upon a time, America was the best place in the world for those that wanted to work for themselves.  Our free market capitalist system created an environment in which entrepreneurs and small businesses greatly thrived, but today they are being absolutely eviscerated by the control freak bureaucrats that dominate our political system.  Year after year, leftist politicians just keep piling on more rules, more regulations, more red tape and more taxes.  As a result, the number of self-employed Americans is now lower than it was in 1990…

In April 1990, 8.7 million Americans were self-employed, but today only 8.4 million Americans are self-employed.

Of course our population has grown much, much larger since that time.  In 1990, there were 249 million people living in the United States, but today there are 321 million people living in this country.

What this means is that the percentage of the population that is self-employed is way down.

In fact, one study found that the percentage of Americans that are self-employed fell by more than 20 percent between 1991 and 2010.

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Over The Last 10 Years The U.S. Economy Has Grown At EXACTLY The Same Rate As It Did During The 1930s

Even though I write about our ongoing long-term economic collapse every day, I didn’t realize that things were this bad.  In this article, I am going to show you that the average rate of growth for the U.S. economy over the past 10 years is exactly equal to the average rate that the U.S. economy grew during the 1930s.  Perhaps this fact shouldn’t be that surprising, because we already knew that Barack Obama was the only president in the entire history of the United States not to have a single year when the economy grew by at least 3 percent.  Of course the mainstream media continues to push the perception that the U.S. economy is in “recovery mode”, but the truth is that this current era has far more in common with the Great Depression than it does with times of great economic prosperity.

Earlier today I came across an article about President Trump’s new budget from Fox News, and in this article the author makes a startling claim…

The hard fact is that the past decade’s $10 trillion in deficit spending has produced the worst economic growth as measured by Gross Domestic Product in our nation’s history.  You read that right, in the past decade our nation’s economy grew slower than even during the Great Depression. This stagnant, new normal, low-growth economy is leaving millions of working age people behind who have given up even trying to participate, and has led to a malaise where many doubt that the American dream is attainable.

When I first read that, I thought that this claim could not possibly be true.  But I was curious, and so I looked up the numbers for myself.

What I found was absolutely astounding.

The following are U.S. GDP growth rates for every year during the 1930s…

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The Perfect Storm Hits Used-Car Values: The Foundation Of The Auto Industry Is Faltering

1) Trade Cycles and How They Affect New Vehicle Sales Velocity

Used car values determine in large the velocity of new car sales. Most new car transactions involve a trade. The level of equity in the trade oftentimes determines whether a new vehicle transaction will be successful or not. Inclining used car values lead to faster trade cycles while declining used car values lead to slower trade cycles. Dismal new car sales volume during our last recession created a shortage of used cars. This created a large supply and demand imbalance that made used car values soar from 2009 till 2014 as seen on this chart.

This time period was extremely favorable for new car sales because consumers found themselves in an equitable position on their vehicles in a very short period of time. To illustrate this, consider this chart of a 60-month loan.

The black line represents the principal balance owed. An optimal trade cycle occurs when the principal balance owed on a loan intersects with the market value of the vehicle. The bullish used car cycle for passenger cars ended in 2014 as a result of extreme pricing pressure from new car leases. Since 2014, used passenger car values have corrected and continue to underperform. This underperformance is largely due to the effects that falling used car values have had on new car sales velocity. A longer trade cycle results in a slower velocity of new car sales. Today, we’ve seen data suggesting that used car values can drop as much as 50% from current levels. Refer to the above loan chart and consider what a drop that large would mean for new car sales velocity in terms of trade cycles.

2) Increased Dependency on Leasing

Used car values also determine the effectiveness of leasing. The most significant component of a lease is the gap between the residual value and the sale price of the vehicle. A residual value is little more than a guess at the future value of a vehicle. Manufacturers and third party companies like ALG use current and historic used car value data to establish residuals. Because of this process, residual values tend to lag used car values. As residuals rise, the gap between the residual value and the sales price gets smaller leading to lower payments. As residuals fall, the gap becomes larger leading to higher payments.

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UBS Hints At Rampant Auto Lending Fraud; "It’s Not Just Smoke And Mirrors Anymore"

For months we've written about the imminently doomed auto bubble in the U.S., spurred in no small part by an unprecedented relaxation of underwriting standards by banks that would put even the shenanigans of the 2008 mortgage crisis to shame.  From stretched out lending terms to promotional interest rates, auto lenders have increasingly played every trick necessary to get those incremental new car buyers into the most expensive car their monthly budgets could possibly absorb.

That said, in recent weeks there has been growing concern that consumers, auto dealers and/or banks have been going beyond simply relaxing underwriting standards and have instead been forced to commit outright fraud in order to attract that incremental auto volume growth.  As UBS Strategist Matthew Mish told Bloomberg, “something is definitely going on under the hood...it’s not just smoke and mirrors anymore.”

The evidence is growing. First, the explosion of technology makes gaining access to information to improve credit scores very simple. Internet searches for 'credit score' are at record levels. Second, our survey finds 21% of auto loan borrowers admitted to some form of inaccuracy in their loan applications. Third, there is growing concern reported among auto lenders around fraud, which is the extreme case of this behavior.

Overall, the explosion and adoption of technology makes gaining access to "proven" methods for improving credit scores extremely simple. To this point, the popularity of internet searches for "credit score" has been rising consistently and is near peak post-crisis levels (Figure 7). Similarly, our survey finds that 21% of auto loan borrowers admitted to some inaccuracy in their application for non-mortgage related debt (auto, student or credit card loan). More concerning, this trend may be systemic as 29% of other consumer loan (i.e., student loan, credit card) borrowers acknowledged some form of inaccuracy in their applications (Figure 8).

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World Money: Five Hidden Signals From The IMF

Less than a month ago a handful of the world’s policy makers gathered in Washington at the International Monetary Fund (IMF), no surprising headlines were run - but an obscure meeting and a discreet report launched exclusive signals for the next global economic crisis.

The panel, which included five of the most elite global bankers, was held during the IMF’s spring meetings to discuss the special drawing rights (SDR) 50th anniversary.  On the surface the panel was a snoozefest, but reading beyond the jargon offers critical takeaways.

The discussion revealed what global central banks are planning for a future crisis and how the IMF is orchestrating policy for financial bubbles, currency shocks and institutional failures.

Why the urgency from the financial elites?

In the April 2017 “Global Financial Stability Report,” IMF researchers targeted the U.S corporate debt market and how extreme changes in its equity market has left the global economy at risk. While the report may have been missed by major financial news outlets, it was enough to give major concern to those paying attention.The IMF research report noted:

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Manufacturing Resistance – The American Public Is Being Manipulated Into Irrelevance

No honest person could accuse me of being a Trump fan or supporter. I refused to back his candidacy despite my total disdain for Hillary Clinton and pretty much everything she stands for. More importantly, I’ve written a multitude of articles since he was inaugurated severely taking him to task on a wide variety of subjects. I’ve tirelessly discussed how he’s outsourced his economic policy to Goldman Sachs, and condemned his burgeoning neocon foreign policy, evidenced by his disturbing coziness with the autocratic barbarians of Saudi Arabia.

Nevertheless, the most incredible aspect of the past four months is not how much of a fake populist Trump’s proven to be, but how the corporate media’s managed to disgust me even more. I’m happy to become outraged at Trump, because I find many things about Trump outrageous. That said, I find it telling that the stuff about Trump that outrages me, is never the same stuff which outrages the corporate media. Why is that?

The reason is the corporate media doesn’t mind Goldman Sachs running U.S. economic policy. It also doesn’t mind a close alliance with the terrorist state of Saudi Arabia, or our government’s endless string of disastrous neocon wars abroad. In fact, when it comes to the latter, the corporate media is reliably the primary cheerleader for unprovoked militarism.

Following the election of Trump, an axis of evil in U.S. politics has formed consisting of the corporate media, neoliberal Democrats (Hillary cultists) and neocons. This alliance has one primary objective, which revolves around obsessing incessantly on a conspiracy theory that deflects attention away from the crimes of our very own domestic plutocrats, war mongers and rent-seekers (you know, the forces that are actually wrecking the country). Russia is the perfect outside enemy to rally ignorant rubes around in order to prevent any real progressive or centrist populism from ever gaining a foothold in U.S. politics. Unfortunately, thanks to the gullibility of the average American, their plan seems to be succeeding.

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Financial Weapons Of Mass Destruction: The Top 25 U.S. Banks Have 222 Trillion Dollars Of Exposure To Derivatives

The recklessness of the “too big to fail” banks almost doomed them the last time around, but apparently they still haven’t learned from their past mistakes.  Today, the top 25 U.S. banks have 222 trillion dollars of exposure to derivatives.  In other words, the exposure that these banks have to derivatives contracts is approximately equivalent to the gross domestic product of the United States times twelve.  As long as stock prices continue to rise and the U.S. economy stays fairly stable, these extremely risky financial weapons of mass destruction will probably not take down our entire financial system.  But someday another major crisis will inevitably happen, and when that day arrives the devastation that these financial instruments will cause will be absolutely unprecedented.

During the great financial crisis of 2008, derivatives played a starring role, and U.S. taxpayers were forced to step in and bail out companies such as AIG that were on the verge of collapse because the risks that they took were just too great.

But now it is happening again, and nobody is really talking very much about it.  In a desperate search for higher profits, all of the “too big to fail” banks are gambling like crazy, and at some point a lot of these bets are going to go really bad.  The following numbers regarding exposure to derivatives contracts come directly from the OCC’s most recent quarterly report (see Table 2), and as you can see the level of recklessness that we are currently witnessing is more than just a little bit alarming…

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"It Fell Off A Cliff": Morgan Stanley's Macro Indicator Just Crashed The Most Since Dec. 2008

Step aside Citi US Economic Surprise Index, which after a "surprising" streak of negative economic data, recently crashed to the lowest level since October 2016...

... and make way for Morgan Stanley's ARIA, a monthly US macro indicator based on data collected through primary research on key US sectors (consumer, autos, housing, employment, and business investment).

The reason why this particular index will likely feature prominently in financial commentary in the coming days and weeks, is that as Morgan Stanley's chief economist Ellen Zentner writes, "ARIA appears to have fallen off a cliff in April, with a 0.72% decline, the largest since December 2008."

As Zentner expains, weakness was led by sharp declines in the investment and housing components, although even as the bank's data on business and residential investment was weaker, the consumer, employment, and autos components posted modest to moderate gains in April.

What was the main driver for the collapse: "Business formations were this month's biggest drag, as they looked to have reversed an earlier post-election surge. If not for that, ARIA would have come in slightly positive in April at +0.13%."

Some more observations from MS:

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Why Tesla's Solar Roof Is Just Another Giant Taxpayer Gift To Elon Musk

There are two things in which Elon Musk is an undisputed champion: creating hype and buzz for massively cash-flow burning products and companies, and abusing every possible loophole in the US tax code to get explicit and implicit subsidies from the government. He demonstrated the latter on Wednesday, when Tesla began taking orders for its solar roof tiles, a cornerstone strategy of Elon Musk's strategy to sell a "green", fossil-fuel-free lifestyle under the brand name of its luxury electric vehicles.

First the bad news: Tesla said the product, which generates solar energy without the need for traditional rooftop panels - assuming one lives in a traditionally sunny climate - will be substantially pricier than a conventional roof but don't worry, it will "look better" and ultimately pay for itself through reduced electricity costs... it just may take 20 or more years for the payback period to occur (more on the math below).

Made with tempered glass, Tesla assures that "Solar Roof tiles are more than three times stronger than standard roofing tiles" and is why the company offers the "best warranty in the industry - the lifetime of your house, or infinity, whichever comes first." There is just one problem: most Americans live in their house less than a decade before they end up selling it and moving to a different roof, which means that the vast majority of Americans who end up buying the new Tesla product offering will have moved out of their home long before the investment pays back for itself.

The solar roof tiles were unveiled in October as Musk sought to convince shareholders of the benefits of combining his electric vehicle maker with SolarCity, the solar installer run by his cousins. Tesla acquired SolarCity in November, and has been working to remake a money-losing company that was selling traditional solar systems into a premium energy brand. To date, other companies have had little market success with attempts to incorporate solar technology directly into roof tiles. It remains unclear whether the products will appeal to consumers as much as Tesla's electric vehicles do.

Being a Tesla product, esthetics are perhaps the most important variable, and as shown in the images below, the roofs are certainly pretty and comes in four different formats:

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Panic! Like It’s 1837

180 years ago today, everyone panicked. On May 10, 1837, New York banks finally realized that the easy money they were lending was unsustainable, and demanded payment in “specie,” or hard money like gold and silver coin. They had previously been accepting paper currency that for every $5 was backed by only $1 in silver or gold.

Things culminated to that point after years of borrowing the paper currency to expand west, buy land, and build infrastructure. As silver came in from Mexico, banks lent out five times the amount of their deposits–fractional reserve banking.

At the same time, the value of silver was falling because its supply was increasing in America. Great Britain, which had been lending much of the money, was less interested in silver because they could pay for trade with China in opium. So even though Britain had a year earlier begun demanding payment in specie, the abundant silver in America did not hold the same weight, so to speak, it had previously.

Now, reflect on this for a second. The USA was depending on loans from a country that they had successfully revolted and seceded from fewer than 50 years earlier. Britain had also provoked The War of 1812 just 25 years earlier when they wouldn’t stop attacking American ships. But somehow it still seemed like a good idea to depend on British banks to form the foundation of American development.

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Stockman On The Coming Fiscal Bloodbath: "Sell Stocks, Sell Bonds, Buy Gold"

David Stockman joined Greg Hunter of USA Watchdog to discuss what he views as a fiscal bloodbath and the biggest bond market bubble to ever hit the global economy.

To begin the discussion, the Washington insider was asked about the cash on hand in the United States federal budget and the fiscal conditions that Donald Trump faced where he unloaded, “I think it is a total calamity. They capitulated entirely.”

While speaking on what cuts Trump proposed Stockman pressed, “He wants to cut $18 billion in order to ‘balance it out’ from domestic programs like the the National Institute of Health (NIH), Public Broadcasting Service (PBS) and a lot of things in between… and that’s just a down payment for the big reduction proposed for the full fiscal year that starts in October. That proposal is looking for $54 billion for defense and other domestic priorities, met with $54 billion of cuts on the domestic side… the problem is, Trump went to the Hill and they got totally fleeced. They ended up with most of the increases they wanted because that is the way Washington works. More money for the defense and border pork barrel.”

With contrarian style, David Stockman then pointed out, “He ended up with no cuts at all. He now has $30 billion in increases and a statement from Congress, that was on a bipartisan basis, allowed that we’re in control – you can have your defense and other priorities but we’ll march the budget higher together. I think that’s the opening gambit for what’s going to happen in the full year as the Congress struggles to try to pass bills for fiscal year 2018. They’re going to raise defense and all the priorities, they’ll cut nothing domestically…”

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Some Chinese Banks Suspend "Interbank Business" As Regulator Demands That Collateral "Actually Exists"

With "risk" in most of the developed world seemingly a long forgotten four-letter word, as seen by today's plunge in the VIX to a level not seen since 1993, traders hoping for some "risk event" have been confined to the recent turmoil in China, where overnight not only did trade data disappoint, with both imports and exports missing, but bond yields jumped to the highest level since 2015, dragging stocks lower even as the local commodity crash slammed iron ore and copper to new YTD lows.

While largely a "controlled" tightening, meant to contain China's out-of-control shadow banking system, the recent gyrations in Chinese capital markets are starting to have a profound impact on local funding, resulting in a collapse in new bond issuance, and according to FT calculations, in April the number of aborted issues rose to 154, up from 94 in March, 32 in February and 31 in January. 

As DB added, "local bond markets are practically shut for corporates. In fact, YTD issuance is down 40%+ yoy and net issuance has been negative in three out of the first four months this year. A number of issuers are being forced to cancel bond issuances (over RMB100 billion YTD) and there were reports (Bloomberg) of even CDB halting issuance (though subsequently denied). Some AA corporates are now issuing at north of 7%."

These signs of mounting stress in China’s $9.3 trillion bond market come less than a month after the country’s banking regulator, Guo Shuqing, was quoted as supporting a campaign to sort out chaotic practices, and threatening to resign if the banking system became “a complete mess”.

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Former Reagan Administration Official Is Warning Of A Financial Collapse Some Time ‘Between August And November’

If a former Reagan administration official is correct, we are likely to see the next major financial collapse by the end of 2017.  According to Wikipedia, David Stockman “is an author, former businessman and U.S. politician who served as a Republican U.S. Representative from the state of Michigan (1977–1981) and as the Director of the Office of Management and Budget (1981–1985) under President Ronald Reagan.”  He has been frequently interviewed by mainstream news outlets such as CNBC, Bloomberg and PBS, and he is a highly respected voice in the financial community.  Like other analysts, Stockman believes that the U.S. economy is in dire shape, and he told Greg Hunter during a recent interview that he is convinced that the S&P 500 could soon crash “by 40% or even more”…

The market is pricing itself for perfection for all of eternity.  This is crazy. . . . I think the market could easily drop to 1,600 or 1,300.  It could drop by 40% or even more once the fantasy ends.  When the government shows its true colors, that it’s headed for a fiscal blood bath when this crazy notion that there is going to be some Trump fiscal stimulus is put to rest once and for all.  I mean it’s not going to happen.  They can’t pass a tax cut that big without a budget resolution that incorporated $10 trillion or $15 trillion in debt over the next decade.  It’s just not going to pass Congress. . . . I think this is the greatest sucker’s rally we have ever seen.”

But even more alarming is what Stockman had to say about the potential timing of such a financial crash.  According to Stockman, if he were to pick a time for the next major stock market plunge he would “target sometime between August and November”…

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Goldman Explains What The Repeal Of Obamacare Really Means

After months of internal discord, House Republicans finally approved a bill to overhaul Obamacare, which they have been attacking since it was enacted in 2010.  While there are various nuances, here are the bill's main provisions courtesy of Reuters:

COVERAGE

• The Republican plan would maintain some of Obamacare's most popular provisions. It would allow young adults to stay on their parents' health plan until age 26.
• The bill would let states opt out of Obamacare's mandate that insurers charge the same rates on sick and healthy people. It would also allow states to opt out of Obamacare's requirement that insurers cover 10 essential health benefits, such as maternity care and prescription drug costs.
• The measure would provide states with $100 billion, largely to fund high-risk pools to provide insurance to the sickest patients. The bill also would provide $8 billion over five years to help those with pre-existing conditions pay for insurance.
• It would let insurers mark up premiums by 30 percent for those who have a lapse in insurance coverage of about two months or more. Insurers won a provision they had long sought: The ability to charge older Americans up to five times more than young people. Under Obamacare, they could only charge up to three times more.

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China's Plan To Subvert The Global Dollar Standard

If nothing else, the Chinese have a sense of history and destiny. They have had a glorious past, stretching back millennia, and once controlled most of the Asian heartland in the days of Genghis and Kublai Khan. But even then, China was essentially inward-looking, protecting her own cultural values. Trade with Europeans in the centuries following Marco Polo’s visit was mostly at the behest of European travelers, not the Chinese. She exported her art and culture to visitors, and did not import European values.

This was a mistake, implicitly recognized by China’s current leadership. This time, China has embraced Western thinking and technology to further her own progress. The development of the Shanghai Cooperation Organization in recent years is the platform for China in partnership with Russia to embrace the Asian continent through peaceful trade, improving the lives of all the citizens of the many nations who are and will become members. The SCO promises a revolution in the wealth and living standards of over 40% of the world’s population, and associated benefits for its supplier-nations on the other continents.

China’s approach is fundamentally different from that of America, which under President Trump appears to be envious of the success of non-Americans producing goods and services for the American consumer. Autarkic America has a GDP of $19 trillion. Eventually, China will have free trade agreements with the rest of the world, excluding for now the EU. On a purchasing power parity basis, this is a market with a GDP of about $70 trillion, out of a world total of about $125 trillion.

Already, China dominates world trade. Her own economy is already significantly larger than that of the US on the purchasing power parity (PPP) estimates. While being the largest consumer of raw materials, China also exports more finished goods by value than any other country. As the Asian powerhouse, she has lifted the economies of all the countries on the western side of the Pacific Ocean, which including her own between them have a GDP of $50 trillion. Her exports into Asia now exceed her exports to the US. Yet despite this dominance, most of China’s trade is conducted in US dollars, something China is bound to change, if she is to contain external economic risk and replace America as the dominant global empire. Both objectives can only be achieved by China replacing the dollar as a medium of exchange.

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U.S. Auto Sales Plunge Dramatically As The Consumer Debt Bubble Continues To Collapse

One sector of the economy that is acting as if we were already in the middle of a horrible recession is the auto industry.  We just got sales figures for the month of April, and every single major U.S. auto manufacturer missed their sales projections.  And compared to one year ago, sales were way down across the entire industry.  When you add this latest news to all of the other signals that the U.S. economy is slowly down substantially, a very disturbing picture begins to emerge.  Either the U.S. economy is steamrolling toward a major slowdown, or this is one heck of a head fake.

One analyst that has been waiting for auto sales to start declining is Graham Summers.  According to Summers, the boom in auto sales that we witnessed in previous years was largely fueled by subprime lending, and now that subprime auto loan bubble is starting to burst…

Auto-loan generation has gone absolutely vertical since 2009, rising an incredible 56% in seven years. Even more incredibly roughly 1/3 of this ~$450 billion in new loans are subprime AKA garbage.

In the simplest of terms, this is Subprime 2.0… the tip of the $199 TRILLION debt iceberg, just as subprime mortgages were for the Housing Bubble.

I’ve been watching this industry for months now, waiting for the signal that it’s ready to explode.

That signal just hit.

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Central Banks Are Talking More Than Ever

Robert Shiller, in a discussion paper earlier this year, laid out the argument for economists paying closer attention to the "narratives" surrounding economics. To Shiller, popular narratives drive more of the fundamental economic outcomes than economists are typically willing to admit.

For example (one provided by Shiller), the 1921 recession following the end of World War I was, in part, driven by narrative. In contrast to the typical explanation of why it occurred (a central banker went on a long vacation), there are more fundamental reasons for the downturn, including a 50% increase in the price of oil (with wide-spread fear that oil production would peak in a few years) and-probably the most important-deflation expectations. Because consumers believed that prices would fall, they held back from making purchases.

This was the era of the "profiteer", the word used to describe price gouging. Thrift became a virtue, and there were calls to avoid buying anything other than the essentials. Consumer spending plummetted, leading Shiller to describe the recession as a "consumer boycott" lead by narrative, not by a traditional business cycle.

While the example above is buried deep in history, there is applicability to the present. Specifically, the rise in central bank communications. There have never been more speeches given by representatives of central banks than today. In a recent speech given by the Chief Economist of the Bank of England Andrew Haldane,  he calls for less complex and more accessible communication of monetary policy. Ostensibly, this is to increase transparency and trust with the public and describe their actions and intentions to markets.

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Welcome To The Corporatocracy

America’s large corporations and its government have merged. Or was it an acquisition? If the latter, who acquired whom? Unfortunately, the labels affixed to purely corporate combinations lose their analytical usefulness here. While the two retain their own distinct legal structures and managements, so to speak, such a close community of interest has evolved that it’s no longer possible to separate them or delineate their individual contours. Political labels are no help; the ones most often used have become hopelessly imprecise. The Wikipedia definition of “fascism” is over 8,000 words, with 43 notes and 16 references.

However, the conjoined blob is so big, rapacious, and intrusive that akin to Justice Potter Stewart’s famous non-definition of obscenity, everybody knows it when they see or otherwise come into contact with it. This article will use the term “corporatocracy.” It’s less letters, dashes, and words to type than “the corporate-government-combination.” No serviceable understanding of either US history or current events is possible without close study of the corporatocracy. Unfortunately, such study, like entomology or cleaning septic tanks, requires a stout constitution. But take heart, entomologists grow to love their creepy crawly things, and septic tank cleaners say that after a few minutes you don’t even notice the smell.

A cherished delusion of naive liberals holds that big government is a counterweight, not a partner, to big business. Such a rationale is touted when the righteous demand new regulation, the public and media endorse it, the legislators pass it, and the president signs it into law. However, there are always unpaved stretches on the road to hell—once regulation is law, the righteous, public, media, legislators, and president, and their ostensibly good intentions, are on to the next cause.

In the quiet obscurity they relish, regulators and regulated get down to doing what they do best: bending the law to their joint benefit. Business, whose P&L’s can be powerfully affected by regulations, hire armies of lobbyists and lawyers in a never ending effort to tilt the playing field in their direction, and improve bottom lines, stock prices, and executive bonuses. The return on such investment is far higher than on old fashioned expenditures like research and development, plant and equipment, and job-creating expansion.

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